Lender’s Lawsuit Against HUD Proceeds in Texas

     HOUSTON (CN) – A federal judge declined to transfer or fully dismiss a mortgage lender’s claim that the government unfairly blocked it from originating FHA-insured loans.



     Allied Home Mortgage claimed the government improperly cut off its ability to originate and underwrite FHA-insured mortgage loans for 14 days.
     Last November, the United States filed a federal lawsuit in Manhattan accusing Allied Home Mortgage of committing serial frauds that cost taxpayers hundreds of millions of dollars and cost thousands of people their homes.
     Allied and CEO James Hodge cried foul, claiming the U.S. Department of Housing and Urban Development (HUD) had violated their right to due process by suspending Allied’s ability to originate and underwrite FHA-insured mortgage loans and Hodge’s right to participate in FHA-insured lending.
     Allied and Hodge quickly fought the allegations by filing for declaratory and injunctive relief in the Southern District of Texas. They argued, among other things, that HUD had botched the process of notifying them about their suspensions.
     Within 14 days, U.S. District Judge Melinda Harmon in Houston granted a preliminary injunction that enjoined the suspensions.
     But last week U.S. District Judge Gray Miller vacated the injunction, noting that the government has since corrected the defective notices.
     “In this case, defendants have not only cured their defective actions, but there is also no question for the court regarding possible future conduct,” Miller wrote.
     He said the agency has made it “absolutely clear” that the alleged notification flaws have since been corrected and would not likely happen again.
     Though Miller dismissed Allied and Hodge’s bid for an injunction, he allowed them to proceed with their claim for declaratory relief, saying it was based on “concrete and particularized” allegations.
     Allied and Hodge had argued that because they were barred from originating FHA-insured loans, which constitute 70 percent of Allied’s business, several banks also suspended their warehouse lines of credit, blocking Allied from originating any type of mortgage, FHA-insured or not.
     They claim Texas Capital Bank is the only bank that has since restored Allied’s line of credit, but only to 10 percent of its previous level.
     Miller noted that the suspension or termination of warehouse lines of credit is a third-party harm that can be traced to the government’s alleged actions.
     “[I]f plaintiffs prevail on the merits of their claim, a declaration from this court would likely prevent defendants’ actions from harming them, albeit one step removed,” he wrote.
     He denied HUD’s motion to transfer, stating that “the claims and issues remaining in the instant action are substantially dissimilar from the government’s qui tam action in the Southern District of New York.” (Emphasis in original.)

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